by Jon Beddell
Foreign Currency Market Update – GBP / INR
The big fundamental news last week is that the Bank of England have opted not to extend the £200bn asset purchase facility that was designed to increase money supply in the banking system. The bank were faced with a decision between bolstering the somewhat anaemic economic recover, and stoking inflation after recent data showed inflation hitting 2.9%, well above the bank’s 2% target. Over all sterling has shown little reaction to the widely expected outcome, trading flat against the euro, and falling against an overtly strong US dollar.
The Rupee has remained steadfast in the face of weak stock markets, which have driven funds in search of “safe havens” such as the Yen and US dollar. Sterling has suffered as a result of this trend, as have the high yielding commodity currencies like AUD and NZD. The Rupee by contrast has shown itself to be relatively neutral in terms of investor risk sentiment, and did not plunge along with high yielders back in October 2008 when the credit crisis first emerged.
The trechnical outlook is in favour of a weaker pound. We are now testing the key support at 72.50, a level that has been challenged twice in the last few months and produced a positive reaction each time. However, the last reaction was decidedly weaker than the October 2009 bounce, leading us to conclude that the pound may slip through support this time. Buyers of the Rupee should therefore cover any requirement now to avoid the risk of further downside.
Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.
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